Barack Obama

Corporate US awaits Obama action on deficit

With Barack Obama back in the White House corporate America awaits his appointment of a treasury secretary to oversee the key problem

PUBLISHED : Friday, 09 November, 2012, 12:00am
UPDATED : Friday, 09 November, 2012, 3:59am

Wall Street executives who lost the bet that Mitt Romney would defeat Barack Obama are bracing for tougher regulation and hoping a deal can be struck with Congress to cut the deficit.

Obama's choice to succeed Treasury Secretary Tim Geithner would be watched closely for signs of the administration's approach to business and the deficit, industry executives said. Erskine Bowles, who served as chief-of-staff under former president Bill Clinton, would be a sign that Obama was willing to endorse a bipartisan debt-reduction plan supported by many business leaders, they said.

"With the appointment of the treasury secretary, Obama will be sending an important message to the public and to the foreign governments who own a lot of treasuries," Curtis Arledge, the chief executive of Bank of New York Mellon's investment-management arm, said yesterday. "If he goes with somebody like Erskine Bowles, then the message will be that he cares about the deficit and is serious about cutting it."

Shares of Wall Street firms fell in New York on what analysts said were dashed hopes that Romney would roll back or ease the 2010 Dodd-Frank Act that overhauled financial regulation. Morgan Stanley, Goldman Sachs, Bank of America and Citigroup each tumbled more than 6 per cent, putting them among the 10 biggest decliners in the Standard & Poor's 500 Index.

Employees of Goldman Sachs, Bank of America, Morgan Stanley, JP Morgan Chase and Credit Suisse Group made their firms the five biggest sources of campaign contributions to Romney, according to data compiled by the Centre for Responsive Politics, a Washington-based research group that tracks political donations.

Still, executives at the firms downplayed the significance of the election, focusing instead on the need to achieve political agreement on debt reduction and avert the "fiscal cliff" of tax increases and spending cuts scheduled to take effect at the beginning of next year.

"The outcome of the election almost takes a back seat to the formulation of a plan to address the federal deficit," James Mahoney, Bank of America's head of corporate communications and public policy, said. "That is clearly the focus at this point. It's an essential ingredient for stability of the financial markets and for a strong economy."

Wall Street leaders started throwing their support behind Bowles's debt-reduction efforts even before the election. JP Morgan chief executive Jamie Dimon, said last month that the economy "would be booming" if Congress had passed the so-called Simpson-Bowles plan co-written with former Republican senator Alan Simpson last year.

Obama named the two in February 2010 to lead an 18-member bipartisan commission. Its US$3.8 trillion budget-cutting plan would have lowered individual and corporate income-tax rates, eliminated deductions such as the one for mortgage interest, raised the petrol tax and reduced social security, Medicare and discretionary spending.

The plan was rejected by seven commission members, including Romney's vice-presidential running mate Paul Ryan, and failed to reach the 14 votes required to send it to Congress. It never was taken up for a vote by the Senate and was defeated 382-38 in a House vote this year.

Goldman Sachs chief executive Lloyd Blankfein was interviewed with Bowles and Simpson on CNBC last month to promote reviving a bipartisan plan to reduce the US$16 trillion government debt.

If there were "some compromise laid out, what kind of stimulus do you think that would provide?" he asked at the time. "I'd be a buyer of the market."

Blankfein said that now the election was over, "we can all focus on playing a part toward our shared goal of making our country and economy more successful".

"To succeed in business you have to be able to compromise, why should that be different in politics?" John Mack, the former chairman of Morgan Stanley and a Romney backer, said.

"Erskine has plenty of experience not only in government but in business. He ran his own business. He grew up in business."

Mack said he did not think the administration worked closely enough with the business community, adding that he would be comforted by seeing Obama choose a corporate chief to run Treasury such as BlackRock's Larry Fink, General Electric's Jeff Immelt, Kenneth Chenault of American Express or Honeywell International's David Cote.